Tatung Company, Ltd. v. Shu Tze Hsu, No. SACV 13-1743-DOC (ANx) (C.D. Cal. Sept. 2, 2014) [click for opinion]
Plaintiff Tatung Company, Ltd. sued 28 defendants, claiming that they were connected to an earlier fraud perpetrated on Plaintiff. Several of the Defendants were Taiwanese nationals involved in international manufacturing and trade through a family-operated, multinational conglomerate. Defendants allegedly sought to expand the conglomerate's operations into the United States via a sham enterprise built around Westinghouse Digital Electronics ("WDE"), an electronics company allegedly controlled by Defendants. WDE appeared to be a well-capitalized company, but in fact, was substantially undercapitalized. Unbeknownst to Plaintiff, which continued to extend increasing amounts of credit to WDE, tens of millions of dollars were being secretly transferred from WDE to a separate investment enterprise created specifically for Defendants.
Plaintiff later commenced arbitration proceedings against several parties, including WDE, to recover the unpaid debt that WDE owed to Plaintiff. After Plaintiff received an arbitral award of $22 million against WDE, it instituted this action against Defendants, asserting claims under the Racketeer Influenced and Corrupt Organizations Act ("Civil RICO"), 18 U.S.C. §§ 1961, 1962, fraud, civil conspiracy to commit fraud, avoidance and recovery of fraudulent transfer, conspiracy to fraudulently transfer, breach of fiduciary duty, and alter ego liability. In response, Defendants moved to dismiss the complaint for, inter alia, lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2).
The Central District of California held that personal jurisdiction did, in fact, exist over Defendants. The court began by analyzing California's long-arm statute and asking whether the exercise of jurisdiction would satisfy notions of due process. Due process requires a defendant to have minimum contacts with the forum state, either through general jurisdiction or specific jurisdiction. In a case involving a non-resident defendant committing an intentional tort, specific jurisdiction exists when (1) the intentional act was expressly aimed at the forum state, which created harm that the defendants knew was likely to be suffered in the forum state, and (2) the claim arose out of or was related to the defendant's forum-related activities. If these two prongs are met, the court would then look to whether a defendant offers any compelling arguments that would render jurisdiction unreasonable.
According to the court, Defendants committed an intentional act aimed at California which caused harm that they knew would likely be suffered in California. As evidence, the court explained that Defendants used legal and accounting professionals residing in California to defraud Plaintiff in California, Defendants formed and operated a separate entity to hold part of WDE's business in California, and Defendants transferred $100 million out of WDE in California to the investment enterprise. It was not compulsory for Plaintiff to be a California resident for purposes of this personal jurisdiction analysis, but it was necessary for Defendants to expressly aim their conduct at California.
Next, the court used a "but for" test to determine whether Plaintiff's claims arose out of Defendants' California-related activities. The court found in the affirmative, holding that Plaintiff's claims against Defendants would have not have arisen but for Defendants' California activities, specifically those activities related to WDE, a California-based corporation.
Since each prong of the test was met, the court considered whether Defendants had presented a compelling case that exercise of jurisdiction over them would be unreasonable. The court concluded that Defendants deliberately injected themselves into the affairs of California residents and entities through management of multiple California entities and residents, owning and controlling entities located in California, and transferring funds back and forth between California and off-shore entities. California also had a strong interest in providing relief for companies doing business in California with California-based entities. Therefore, the court found it would not be unreasonable to find jurisdiction over Defendants in California.
In sum, because Defendants were not able to disprove a single element of the court's test or show that jurisdiction would be unreasonable, the court found that there was personal jurisdiction over Defendants.
Adam Pascarella of the New York office contributed to this summary.